COVID-19’s Legal Ramifications Part 1: Where is my Refund?

This series is a discussion of the legal issues in the sports world amid the novel coronavirus. This is a first for our forum, where each of our contributors will be authoring at least one post, discussing either the sports world now, or what will likely happen in the future, during this unprecedented time. One post will be published each day, focusing on a new topic. Please check in each day for updates and feel free to comment with your questions or comments. Together, we will navigate this new landscape. #ubsportslaw #ublawsportsforum

  • Part 1: Where is my Refund
  • Part 2: What Dead Period? NCAA Schools Defy Recruiting Restrictions During COVID-19
  • Part 3: The Year of the 5th Year Senior
  • Part 4: Not Returning Seniors may Violate Title IX
  • Part 5: Predicting Future Liability
  • Part 6: Whose Draft Is It Anyway
  • Part 7: I’ll be Home for Christmas
  • Part 8: Credibility and Corona
  • Part 9: Simulated Sports Betting 

Where is my Refund?

With the suspension of all of the major professional and collegiate sports, how do these leagues refund their season ticket holders, sponsorships, and other costs that are paid with an expectation of an upcoming or continuing season? Millions of Americans just received their stimulus checks, thousands are receiving refunds for auto insurance as work commutes are non-existent for non-essential workers, what about their season ticket purchases?

Professional Sports leagues are still holding out in hopes that they will be able to make up games that have been postponed due to COVID-19. Their attorneys however advise that their reluctance to offer refunds for ticket purchases leaves them liable for the balances and open to increased scrutiny from fans.

As the future for the remainder of the league’s respective seasons, they could be downright canceled or further compressed and disrupted. Even more concerning for the leagues is the real possibility that the return to play will be spectator-less, following Dr. Anthony Fauci’s recommendation discussed further in Could Sports Make a Return Amid the COVID-19 Shutdowns?

Games have a real possibility on returning, however the likely situation will be games held in distant locations, meaning that ticket purchasers will demand their payments back, creating a legal risk for the leagues, individual teams, and ticket companies if leagues refuse.

“If you pay money for a product or service and you are not provided that product or service, I would certainly think you have a right to a refund under any contract theory,” said Brian Gudmundson, a sports litigator with Zimmerman Reed LLP. “In various contexts, the professional sporting world likes to call tickets licenses that can be revoked at any time for any reason, but I don’t think that extends to canceling tickets without a refund.”

“If you pay money for a product or service and you are not provided that product or service, I would certainly think you have a right to a refund under any contract theory. In various contexts, the professional sporting world likes to call tickets licenses that can be revoked at any time for any reason, but I don’t think that extends to canceling tickets without a refund.”

– Brian Gudmundson, Sports Litigator at Zimmerman Reed LLP via Law360

The legal ramifications over ticket refunds have already begun. StubHub the online ticket giant is already facing a proposed class action suit over its policy of giving buyers of tickets an event credit of 120% of the purchased price rather to be used within the next 12 months rather than a full refund.

The action was filed in Wisconsin Federal Court and alleges the company reneged on its guarantee to provide cash refunds. StubHub has stated it is retroactively backing out of its ‘FanProtect’ guarantee, as the cancellation of 23,000 events in the United States alone has left the company unable to issue refunds.

Attorneys for plaintiff have stated that StubHub has created this disastrous situation itself by paying ticket sellers before the events have even occurred despite what they call “[an] entirely foreseeable scenario that world occurrences would cause the simultaneous cancellation of numerous public events.” This practice has essentially left StubHub “holding the bag” by exposing themselves through their own practices.

The NBA and NHL are still hopeful that they will be able to make up as many games as possible. The NHL is leaving ticket refund policies up to individual teams. The MLB who is currently exploring options to begin their season in a non-traditional fashion, is currently treating the games like rainouts and telling fans to keep their tickets. The NBA has not responded to their proposed solution.

With this uncharted territory comes questions that lawmakers have to ask, like whether a credit is sufficient to replace a standard refund. Frank Pallone Jr., the House Energy and Commerce Chairmen issued a statement for how he feels the canceled game tickets should be handled:

“Many Americans are currently facing economic hardship due to COVID-19, and consumers should not be stuck with company credits that they may have to wait many months to use if they use them at all. Full refunds, including all ancillary fees, should be issued so fans can spend or save their money as they need during this time of national crisis.”

Frank Pallone Jr. D – N.J., U.S. House Energy and Commerce Chairman – via Law360

Aaron Swerdlow of Weinberg Gonser LLP, a Sports and Entertainment Lawyer believes that the leagues will take a liberal approach to refunding ticket sales. Swerdlow stated that the leagues will need to remain in fans good graces so that future season tickets are renewed and single-game tickets are still purchased.

“For small and midmarket teams, especially, their season ticket holders are essential to their bottom line, so keeping that renewal rate strong is going to be paramount.”

– Aaron Swerdlow, Sports and Entertainment Lawyer at Weinberg Gonser LLP via Law360

For XFL fans, the recent bankruptcy means that season ticket holders will have to wait at least a month before they are able to get any refunds on their ticket payments. On April 15, U.S. Bankruptcy Judge Laurie Selber Silverstein said that she could not authorize those refunds on the first day of the league’s bankruptcy case. The XFL’s final decision to close its door is further discussed in Report: XFL Suspends Operations Indefinitely.

The XFL is currently on the hook for $3.5 million in refunds to season ticket holders. The XFL has opted to roll-over payments into the next season in hopes the league would make a comeback after the pandemic shutdowns, however the Chapter 11 bankruptcy filing closed that door.

The XFL in good faith brought the issue of refunds to the table on the first day of the hearing. Their attorneys, Young Conaway Stargatt & Taylor LLP, stated that the organization believed it was necessary to maintain goodwill at the business in hopes of keeping its value in a potential sale in the future.

What about billions invested in the rights to broadcast sports exclusively? Neal Pilson, former head of CBS Sports and now consultant, explained that the pandemic shutdown is unprecedented and there will ultimately have to be some kind of adjustment to the very economic base of sports.

Broadcasts help form a very interdependent ecosystem. Network fees ground leagues by way of attracting viewers, fans, and advertisers. The groups bolster the networks who in turn can turn around and pay more fees. The current disruptions send waves throughout the entire ecosystem.

The NCAA tournament alone costs $330,000 per minute of game coverage, not including overtime. The networks will not be entitled to a cash refund and instead will have to wait to see the refund in other forms such as extensions of the current deals with little to no extra cost. This does not solve the issue of immediate cash flow that networks rely on from advertisement revenue.

Advertisement revenue is essential to sustaining these deals. Last year in the NCAA tournament’s men final, a 30-second advertisement cost about $1.5 million. With all of the professional leagues in a postponement period, the loss of revenue is staggering. Those paying for the advertisements lost the opportunity to promote their brands as well.

NBC has been hit extremely hard with the postponement or cancellation of the Kentucky Derby, Stanley Cup Finals, French Open, and the Tokyo Olympic Games which it paid $1.1 billion for the U.S. broadcasting rights. ABC / ESPN and Turner are likely to suffer as well if the NBA’s current season suspension becomes a cancellation. The postseason is when the networks recoup their $300 million annual payment.

The big players are not the only ones who’s broadcasting rights are taking a hit. The NHL, who’s regional sports networks are the primary broadcast vehicles for the league will sustain hits that they likely will not be able to weather as effectively as larger media giants.

Although sports and entertainment lawyers may not be essential workers, the plurality of issues arising from season postponements and cancelations will surely demand legal services in the following years of the pandemic.

Please visit again tomorrow as the next part in the COVID-19’s Legal Ramifications Series covers how NCAA schools defy recruiting restrictions during COVID-19.

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